Why ‘Best Pay’ is not the right question
Recently, On Wall Street published an article entitled ‘Best advisor pay for the $600K producer’. It was packed with data collected as part of their Annual Compensation Report designed to answer a number of top-of-mind question for many advisors, including… “Is my compensation competitive?”
I submit this is not the right question, or at least not the most important. Don’t get me wrong, competitive remuneration is important, but focusing there, undermines the opportunity to understand all the factors that will truly contribute to long-term practice success and ensure the best outcomes for the end clients of the practice. With the advent of Reg BI in the US, and a general orientation to a more Customer Best Interest posture across the industry globally, it makes this all more relevant.
Here’s the question the team at Xtiva would like to see answered:
Where is the best place for my practice to thrive?
Admittedly, this question is really pregnant with another one: Where would we be most enabled to optimize for our performance?
A practice is a tightly woven assembly of customers, vision, value and processes. A practice thrives when each of these elements is allowed to optimize. Not all firms – regardless of structure – are equipped to support the optimization of all practices equally. As a start, consider breaking it down like this:
Where am I and my team going to be happy and supported to do our best work?
This is critical because this translates to happier customers (or engaged customers) which is the #1 practice success factor (just ask Julie Littlechild about the power of Absolute Engagement). Happy and engaged customers – they stay, they consolidate, and they refer. I think we can agree, each of those are big positives for the practice. There are many factors which contribute to your team being able to do its best work; environment, tools, leadership, communication, attitude… in a word… culture.
Where is my practice going to be most efficient?
Efficiency translates to profitability – however your practice measures it. The range of tools, product, process and rules that impact practice efficiency vary greatly on the Street. The balance sheets of practices vary by business style and model, but efficiency creates practice value in all cases – Penny Phillips of Thrivos Consulting writes extensively about practice efficiency excellence. It is critical to carefully analyze – with an open mind – how the tools, products, processes and rules of a firm can support or hinder the efficiency of the practice.
Where are we going to get the best support in evolving to meet the changing market dynamics?
The trend line of change is relentless. In the past 5 years alone, advisor practices have been forced to deal with two major regulatory shifts, a pandemic, unprecedented digitalization, an attack on the traditional economic rents and the continued erosion of investment management as a component of the advisory value proposition (not much right?).
Understanding and developing a response to these changing dynamics is almost impossible for a practice to fund – with time and dollars – on its own. Firms that proactively and thoughtfully support practices in getting ahead of the changing market dynamics best enable the success of those practices.
So, what about pay? Don’t ignore it. But look at it in the context of how you can build the most practice value over time. Profitable growth is the most valuable outcome for a practice. Start there.